The term ‘know your customer’ or ‘KYC’ is sometimes mentioned with careless abandon, however; as the process by which companies verify the true identity of their clients and any associated potential risks, it is vitally important. Customer and third party due diligence should form the foundation of a every company’s compliance program.

Companies and financial institutions of all sizes use KYC as a tool to combat fraud and money laundering. It is also a helpful due diligence tool to protect companies from entering into potentially fraudulent or illegal transactions. It can be conducted against an individual, or a company/organisation (Subject/s).

The key components of a KYC check will include:

  • Verification and authentication of a Subject’s identity.
  • Review of address history.
  • Screening against all sanctions lists, watch lists and politically exposed persons (PEP) lists.
  • Verification of a Subject’s business profile; including occupation and corporate affiliations (past and present).
  • Verification of all relationships within the organisation and its subsidiaries.

To counter potential fraud, the above checks should leverage third-party data and sources, such as credit reports, to help validate the information provided by the client.

Know Your Customer For High-Risk Clients

Know Your Customer can also include ‘Enhanced Due Diligence’ (EDD) for clients that may pose a higher risk; either due to their personal profile or association with a high-risk jurisdiction.

The initial risk assessment of a Subject will determine the requirement for additional due diligence, if any. Those deemed ‘Low- risk’ may be screened through a simplified due diligence process; often the minimum required under the given jurisdiction’s AML regulation. Publicly traded companies are a good example of ‘low- risk’ clients.

Those deemed ‘High-risk’ should go through an enhanced due diligence (EDD) process that includes:

  • Verification of source of funds and wealth.
  • Beneficial ownership identification.
  • Additional investigation into the information supplied by the client; utilising multiple sources.
  • Verification of all business activities through human source intelligence.

Even after an initial report has been conducted into a ‘high-risk’ Subject, Companies should establish periodic reviews of the data to ensure that their profile remains within their risk profile.

Know Your Customer High-Risk Jurisdictions

Certain jurisdictions are universally recognised as ‘higher risk’ due to their opacity, high levels of corruption, links with money laundering or unstable governments. When conducting business within such jurisdictions, or with people who are linked to them, companies should take extra care to help protect themselves and their clients against fraud, money laundering, corruption or terrorist financing.

Examples of sources that can help verify if a country is deemed to be high risk include Transparency International’s “Corruption Perceptions Index” and the US State Department’s annual International Narcotics Control Strategy Report (INCSR), which rates countries based on their money laundering controls and corruption.

It is also prudent to check if a given jurisdiction is a member of Financial Action Task Force; and whether or not there is a high incidence within the country of activities such as financial crime, or drug trafficking.

Matrix capabilities

Whether it is pre-transactional, or financial due diligence, we provide our clients with the intelligence they need to understand the risks they face and make fully informed decisions to further their stated aims.

Our KYC checks can be performed as a standalone service, or as part of an overall due-diligence task, and our standard report includes:

  • Passport verification, including ID and current residence on customers, clients and suppliers.
  • Litigation; historical and current.
  • Corporate affiliations.
  • Reputational screening, with a focus on red flags.
  • Evaluation of any potential risks to your business.
  • Screening against Sanctions and Politically Exposed Persons (PEP) lists, Relatives and Close Associates, and Special Interest Persons & Entities.

Working with Matrix Intelligence

Matrix Intelligence undertake Know Your Customer (KYC), risk analysis and Due Diligence investigations prior to acquisitions, joint ventures or investments. Ideally, we are engaged at an early stage before legal costs and other professional fees are incurred; as this will mitigate the impact if adverse legal, financial or operational issues come to light.

We provide detailed and cost-effective reports, prepared by a team of specialists, to enable our clients to make informed and timely commercial decisions.

Please contact us with any queries about our services.